June 23 – Catching Something (And Why Soybeans Are Down)

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FarmLead Breakfast Brief

Friday, June 23rd, 2017

“There are some achievements which are never done in the presence of those who hear of them. Catching salmon is one, and working all night is another.”
– Anthony Trollope (English novelist)

Good Morning!

At 7:05 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3224 CAD, $1 CAD = $0.7562 USD)

Sept Corn: +0.3¢ (+0.05%) to $3.71 USD or $4.906 CAD
Aug Soybeans: +3.3¢ (+0.35%) to $9.118 USD or $12.057 CAD
Aug Soybean Meal (per short ton): +$0.90 (+0.3%) to $296.30 USD or $391.83 CAD
Aug Soybean Oil (cents per lbs): +0.12¢ (+0.4%) to 31.78¢ USD or 42.03¢ CAD  
Sept Oats: +1.5¢ (+0.6%) to $2.585 USD or $3.418 CAD
Sept Wheat (Chicago): +2.5¢ (+0.55%) to $4.775 USD or $6.314 CAD
Sept Wheat (Kansas City): +0.8¢ (+0.15%) to $4.865 USD or $6.433 CAD
Sept Wheat (Minneapolis): unchanged at $6.613 USD or $8.744 CAD
Nov Canola: +3.4¢/bu / +$1.50/MT (+0.3%) to $8.145/bu / $359.12/MT USD or $10.771/bu / $474.90/MT CAD

Yesterday’s Winnipeg ICE Close
Sept Barley: unchanged at $2.305 USD or $3.048 CAD
Oct Milling Wheat: +8.2¢ (+1.15%) to $5.536 USD or $7.321 CAD

How much of a rally is enough for the next sale?
How many buyers do you call to stay on top of prices?
Let buyers come to you. Post your grain on FarmLead!

Catching Something (And Why Soybeans Are Down)

Grains are in the green this morning, trying to rebound from yesterday’s sell-off across most of the complex as some traders are buying the dip ahead of option expirations and the weekend.

I just spent two remarkable days with the FarmLead team at the 40th Canada Farm Progress Show in Regina, SK.

During the event, we proudly announced our new FarmLead Basis Negotiation feature (Check it out, right here) and talked to farmers from across North America.

It seemed everyone was asking the same question: Where is the rain?

This sentiment dominated our conversations with farmers from Manitoba, Saskatchewan, Alberta, Montana, and the Dakotas.

From what I’ve heard, it seems like anywhere south of the Trans-Canada Highway [1] in Saskatchewan and Alberta needs of a moisture event. Growers north of the Trans-Canada in those two provinces and Manitoba expressed optimism over the weather.

But our Montana and Dakota FarmLead users said they could catch a rain. There are certainly areas that are getting rain but those that are driest continue to get worse.

Ironically though, this morning’s comments and thoughts aren’t about the rain but about frost potential as temperatures across Western Canada and the Northern Plains nearly touch zero Celsius / 32 Fahrenheit.

Soy Prices Fall to a 15-Month Low

These weather concerns come at a time that producers are looking for price support.

Yesterday the CRB commodities index hit a 14-month low, down 0.6% on the day as low inflation forecasts pressured commodity values. The Bloomberg Agricultural Index dropped 1.6% and hit its lowest point since December 2008 (or nearly a decade ago).

Every major ag commodity declined in price on the day. While New York traders were making sense of yesterday’s crash in cocoa, coffee and sugar prices, the buzz in Chicago was the downturn in soy prices.

Soybeans dropped 1.4% on the day to nearly below $9 / bushel on the July contract.

Soy prices are the lowest we’ve seen in 15 months. Driving yesterday’s downturn was a weak export sales figure from last week. The market had expected 200,000 to 400,000 MT of old crop sales and 150,000 to 300,000 MT of new crop purchases. The reality wasn’t close. The numbers from the USDA came in at 111,200 and a paltry 3,800 MT, respectively.

U.S. soybean sales have been weak compared to last year’s performance. By this time in the new crop sales season, export sales had already hit 6.21M tonnes.[2].

In 2017 at the same point, they’re just 3.44MT, or down nearly 45%.

So, what’s driving this down turn?

Three major factors.

  1. The size of the South American crop has been swaying buyers to those markets for supply. In Brazil, the nation’s weakened currency has helped growers attract foreign buyers.
  2. Conditions are still relatively benign for the 2017/18 North American crop. This means that international buyers may be waiting for lower prices (if they’re not happy with the supply mentioned above from South America).
  3. American farmers have also been slow sellers of newer crop. It seems that most memories are just short enough to remember that many priced in new crop sales a bit too early last year and missed the rally.
Is a Corn Rally Still Possible?

Elsewhere, corn prices faced pressure due to better growing conditions and the accelerating U.S. winter wheat harvest. Conversely, Minneapolis spring wheat futures were the only green player on the field. Once again, traders were reacting to the USDA’s export figures.

U.S. corn and wheat export sales from last week were in line and above the market’s expectations, respectively. For corn, new crop U.S. sales are also down compared to last year, with only 2.87M tonnes sold thus far. This figure represents a 36% decline compared to the 4.5M tonnes sold at this time in 2016.

Aggravating the slow new crop sales pace is that both Brazil and Argentina corn prices at their respective ports are much cheaper than American options. Not just for immediate movement but all the way through into October. Adding fuel on the fire is the Argentinian Ag Ministry raising its corn area expectations for the 2017/18 crop to a record 19.6M acres.[3] They also upgraded this year’s 2016/17 crop by 1M tonnes to 47.5M.

The downturn in corn prices has many analysts concerned. Ted Seifried from Zaner Ag Hedge Group is asking if there’s any hope left for a rally in the corn market. [4] Seifried doesn’t say it outright, but I think he is betting that it does when he wrote that “the majority of what I have seen and heard about is less than ideal.”

I agree with Brad Matthews from Roach Ag that we are unlikely to see a final average yield of 171 bu/acre that the USDA is currently forecasting.[5] However, I don’t think the number will be that much lower. I’d project the figure to come in maybe one or two bushels fewer.

I also expect that the corn market will see one more pop this summer due to weather conditions. The market has likely priced in some of this lower yield, but one more shock to the upside is likely when all is said and done.

After yesterday’s down day, it’s worthwhile to take a look in the mirror and check your grain price expectations for the next few months.

Greg Johnson from the Andersons reminded us last night that since July 1, 2014, December (AKA new crop) corn futures have traded above $4.20 USD/bushel in Chicago less than 5% of the time.[6] In 2015, it was above that level for three weeks. In 2016, it happened just 12 days. This year in 2017, it has not crossed that level once.

If you’re hoping to catch a bid, let’s make sure we’re setting those price expectations accordingly. Post your next block and its target on FarmLead today. Most are pleasantly surprised what they reel in after spending some time in the FarmLead waters.

To growth,

Brennan Turner
President/CEO | FarmLead
1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.

About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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